Bailing out Detroit
There has been a lot of talk recently about a possible bail-out of the big three Detroit automakers. There are a lot of reasons for and against helping them out, but I'd have to say, it sure seems like the pro-bailout argument wins.
First, I'm actually glad that the republicans and still-president Bush are blocking a bailout right now. It seems to me that the CEO's of the big three are really pushing to get a deal now because they think that they'll be able to get an easier time from the republicans. It sure seems that way. Though Bush is standing on his lame free-market orthodoxy in public, I think a lot of the reasons why the republicans are against this is based on politics. They hate unions. Practically the only powerful union left in the country is the UAW. If the big three go under, well then, the union is dead. So these guys would rather watch a million jobs go down the tubes for their political gain, than do something to help. That, my friends, is the Rove way. Can you say "Katrina"? I knew you could.
Now, as far as I'm concerned, I don't mind that the republicans are blocking this right now. I'd be fairly surprised if GM goes under in the next two months. By February, we'll have Obama (can it be true???) as the President, and a Democratic congress. They will actually pass some legislation to help Detroit. It honestly doesn't make much sense not to. If Detroit goes under, all those jobs die. Not only the people who work directly for them, but all of the suppliers of parts. What little is left of our manufacturing base in this country will die with them. Sure, Toyota and Honda have US factories... but they are in the South, with no unions, low pay, and little benefits. They use some US parts, but have a lot more imported parts in their cars.
Just for the record, I do not own an American car. I'm not crazy. Let's just say that Detroit made its own bed here. They have made crappy cars that pale in comparison to the Japanese for about 30 years. I've had my share of American disappointments - mostly Fords.
However, I think that with the right leadership, this is a golden opportunity. I'm sure Obama's team is working on the details right now. How about predicating any bailout on Detroit getting its house in order? Forcing them to give up fighting against fuel economy standards? Forcing them to give up fighting against a national health care plan? Essentially forcing them to give up their stances that, while in line with their executives' political predilictions, were disasterous for their companies.
Let's face it, one of the big problems that Detroit has faced is that they have huge "legacy costs". That is, they have to pay tons of money out for the retirement benefits for their retired employees. They fought against the Clinton health plan. How much would passage of that 15 years ago have saved them in health insurance costs? Detroit has also fought tooth and nail against raising fuel economy standards so they could focus on building huge SUV's. How's that worked out for them? They made huge profits on those dinosaurs, but what did they do with the money? This was a huge failure of leadership. While Toyota plowed a billion dollars into development of the Prius... GM dumped a billion into development of the Hummer brand. Explain to me why the GM executives still have jobs...
So basically, Obama will have a choice. Spend billions to prop up the big three, or spend more billions in unemployment benefits, social services, and support for the great lakes states which will implode if Detroit goes under. It is kind of a no-brainer. However, with Detroit on the ropes, it will be the prime time to strike a tough bargain. They get US help, if they give us something in return. What will Obama ask for? We'll see in two months!
Comments
http://www.reuters.com/article/newsOne/idUSTRE4AH1CE20081118
Well, it is pretty clear that the money it will take to bail out Detroit is going to be huge. However, not doing it is also going to going to have astronomical costs. Re-training? Puh-lease. What are these guys going to do? There is no industry left. What are they going to train for? Especially with the economy where it is, there are not going to be any jobs for these people. Then you add to that the costs of the entire tax base of the Great Lakes states evaporating in a haze of joblessness, plant and supplier closures, and housing bubble destruction... well, it just seems to me that it will cost less to keep these guys alive long enough to wait and see. Heck, even throwing them enough to keep going for another year or two will likely cost less in the short term than watching them implode.
I'm not saying that the executives of the big three are not total idiots. They, and they alone, are responsible for the disaster they find themselves in. However, a lot of innocent people are going to pay for their mistakes. Just as I think that government should help out in natural disasters, like Katrina, I think the government needs to step in when foreseeable man-made disasters show up. This is a massive man-made disaster for a lot of real people. They will lose their jobs, and people who have already retired will lose their pensions and health benefits. Why should we watch silently while these people become paupers?
No, we should force Detroit to at least TRY to save itself. Will the Volt save GM? Maybe. We'll never know if we don't let them try. Kill the gas guzzlers and throw a bunch of money at the engineers to leap frog to the next technology. I have a feeling it will pay dividends.
Oh, and one thing that Obama should insist upon should be that the CEO of GM, who insists that global warming doesn't exist, should be fired immediately. Any other executive who shares that view should be shown the door. The only thing that will save Detroit is forcing them to do what they don't want to do, create the next paradigm of their business model...
We're looking at huge problems in this country. With Bush and his ilk, we've been playing "kick the can down the road" for a decade. Health care is the big monster that is already devouring our budget. In another ten years, if things stay the same, we're going to be paying something like half of the Federal budget for health costs. This is not sustainable.
Now, there may be a shortage of GP doctors. Sure. However, specialists are still doctors. They went into a specialty because it held the promise of making them rich, while at the same time avoiding the grind of seeing tons of patients a day just to make ends meet. If we're creating a new health care system, there is no reason why we can't address that distorting incentive. Right now, we pay for services. In other countries they pay for health care outcomes. Shifting the pay structure can incentivize those specialists to go into general practice.
I'm not saying this will be easy. There are huge intrenched interests who benefit hugely from the status quo. What I am saying is that the status quo will bankrupt us in the medium term. I am very sure that Obama will tackle this in the next year or two. He may not come up with the single payer system that I prefer, but from what I read, he's moving away from the current horrible system.
And health care is the biggest cost for all companies in this country. We need universal health care soon. Now. That's a public policy issue that affects everyone, not just the auto makers.
I read someone's pension blog after doing a search on GM and pensions, and supposedly GM has overfunded their pension system, yet the Pension Benefits Guaranty Corp is still worried that it's not on solid ground, primarily because they were over-invested in hedge funds and REITs. Their investment target is primarily bonds, but I don't know when they switched their target to this. So they've probably lost a ton of money recently. Here's the link to that blog post; it's a long but interesting one. http://pensionpulse.blogspot.com/2008/11/whats-good-for-gms-pension-fund.html
And finally, you may be right about propping up the auto industry for a year or two and then they may fail anyway. I have heard from various "experts" on the radio or otherwise that if the US auto industry fails now, while the economy is on the skids and looking worse each day, it could be a total catastrophe for the US economy. If we give $50B to the auto industry and they still blow it in a year or two, it may have less of an impact on the US economy because hopefully they economy will be out of the woods and on the rise. The problem with this is that the auto workers and retirees will still be the ones who suffer. It's just putting off the pain. Hard choices, here.
I'm sure we'd have a great conversation about this over a beer... perhaps we should plan an evening with Janelle and Brian one of these weeks...